Mindanao State University – Senior High School

Accountancy, Business, and Management (ABM)

Fundamentals Of Accountancy, Business, and Management II

MODULE 1: STATEMENT OF COMPPREHENSIVE INCOME

FABM 2, as a learning area tackles the preparation of financial statements of a service business and
merchandising business. In addition, this Module 2 is dedicated to the topic of Statement of
Comprehensive Income. This module is a part of the Financial Statements and is needed in order to
update the Statement of Changes in Owner’s Equity (SCI) and the Statement of Financial Position
(SFP) as we discussed last week. We focused our discussion last week on the SFP and it was shown
there the Owner’s Equity portion wherein we need to study the components of the said equity and
this SCI is one of the components of the Owner’s Equity that we are going to discuss.

There are three Most Essential Learning Competencies (MELC) which are the following: 1. Identify the
elements of Statement of Comprehensive Income and describe each of these items for the service
business and merchandising business; 2. Prepare an SCI for a service business using the single-step
approach; and 3. Prepare an SCI for a merchandising business using the multi-step approach.

These MELC are divided into two modules which are the Module 2 and Module 3. The focus of this
module 2 is to identify the elements of Statement of Comprehensive Income and describe each item
for the service business and merchandising business. We will do this first in the preparation for the next
week lessons which are the preparation of SCI for a service business using single-step approach and
preparation of SCI for a merchandising business using multiple-step approach.

In this module, you will identify the elements of Statement of Comprehensive Income and describe
each of these items for the service business and merchandising business. At the end of this module,
you will be able to:
a. Define Statement of Comprehensive Income
b. Determine the Elements of Comprehensive Income
c. Describe each item for the service business and merchandising business
d. Classify and arrange the titles according to single step form and multiple-step form approach.
In this module, you’re going to learn about Statement of Comprehensive Income. But before that, you
are going to answer first the following questions. Let us see what you know about the new topic.

ACTIVITY I. WHAT I KNOW

Instruction: Identify the correct answer for each of the following statements. Write your answers on the
blank provided after the number.

1. ____________________ Is a financial statement that show the “results of operation of the business
for a given period of time.
2. ____________________ Is the number one element of the statement of Comprehensive Income.
3. ____________________ Refers to proceeds from the sale of merchandise
4. ____________________ The return of merchandise sold maybe due to some damages or not
conforming with orders
5. ____________________ Are incentives given to customers for early collection of their account
within the discount period
6. ____________________ Income refers to rendering of professional services to clients or patients
7. ____________________ Refers to cost of manufacturing or selling the merchandise of goods or
products
8. ____________________ Refers to transportation cost in bringing the merchandise within the
premise of the business to become ready for sale.
9. ____________________ Which are both reductions from Purchases.
10. ____________________ Is the 3rd and the last element that will completely form part of the
Statement of Comprehensive Income.
11. ____________________ Refer to incentive given to customers for early payment of their accounts
within the given period
12. ____________________ The return of the merchandise due to damages or not conforming with the
orders.
13. ____________________ Refers to rendering of professional services to clients or patients like legal
fees income for lawyers and etc.
14. _____________________ Is the paramount concern to those interested in the economic activities
of the enterprise.
15. ____________________ Is one of the most common types of businesses we interact daily. It is a
business that purchases finished products and resells them to consumers.

Lesson Statement of
Comprehensive
2 Income

In the previous lesson, we learned one of the basic financial statements which is the Statement
of Financial Position or the Balance Sheet. We learned the elements and the presentation in
different forms. This time, you are required to identify the elements of Statement of
Comprehensive Income and describe each of these items for the service business and
merchandising business; Here we go….
Let us have a quick review of the previous lessons in Fundamentals of Accountancy, Business and
Management 1. These lessons are necessary for our topic.

MODULE 1 REVIEW. WHAT I REMEMBER AND LEARNED

1. Check your understanding of the following terms. Can you still remember them?
a. Accrual
b. Revenues
c. Expenses
d. Service business
e. Merchandising business
f. Temporary accounts

Instruction: Write your answers on the box provided below as you cite them even if there are
wrong answers and differentiate them one by one.

2. Give two specific account titles for each of the terms and give two examples of service business
and merchandising business. Write your answers on the table provided below.
a. Accrual
b. Revenues
c. Expenses
d. Service business
e. Merchandising business
f. Temporary accounts

Example of
Specific Account Example of
Merchandising
Title Service Business
Business
a. Accrual

b. Revenues

c. Expenses

d. Service Business

e. Merchandising Business

f. Temporary Accounts
Let’s start by answering the following activities.

ACTIVITY II. LET’S FIND OUT THE RESULT

What to do:
a. Write your monthly allowance (computed by daily allowance x number of days in a month)
b. Write the amount you spend on food, transportation, phone load, etc. (make it monthly to
match your allowance)
c. Deduct the amount you spend from the amount of your allowance
d. Associate allowance with revenue and spending with expense with the net amount.

Write your answers on the box provided below.

Questions:
1. How do you find the activity?
____________________________________________________________________________
____________________________________________________________________________

2. What do you think is the result of the allowance versus spending?

____________________________________________________________________________
____________________________________________________________________________

3. What do you think is the importance of doing this activity?

___________________________________________________________________________
___________________________________________________________________________

ACTIVITY III: LET’S FIND OUT THE ACCOUNT TITLES

Instruction: Determine the account title(s) presented in the problem. Write your answer on the box
provided below.

Maxi Laundry Shop generated revenues amounting to P100,000. Expenses for the month totaled
P76,000.

ACTIVITY IV: CLASSIFY THE ACCOUNT TITLES

This activity reviews your familiarization with account titles and their classifications.
Instruction: Write your answers on the table provided below.

Siegren Auto Repair Shop. The operation ended in March 31, 2022.
Below are the given account titles used by the entity.
1. Salaries Expense 7. Advertising Expense
2. Depreciation Expense 8. Uncollectible Accounts
3. Utilities Expense 9. Insurance Expense
4. Accrued Rent Expense 10. Shop supplies on hand
5. Rent Expense 11. Accrued Salaries Expense
6. Service Income 12. Accrued Interest Income
The answer for number 1 is provided for you.

Account Title Major Classification To be Reported at the`

1. Salaries Expense Expense Income Statement
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.

Questions:
1. What can you say for each group of accounts you made?
2. What do you think is the reason why you need to group or classify these account titles?
Write your answers on the box provided below.
1.

2.

ACTIVITY V: CLASSIFY ME
Instruction: Classify the following account Titles. This activity will lead you to prepare a Statement
of Comprehensive Income. Write your answers on the table provided below.
Merchandise Inventory, beg. Sales Returns and Allowances
Purchases Freight In
Sales Discounts Purchase Returns and Allowances
Salaries Expense Sales
Merchandise Inventory, End Purchase Discounts
Freight out Utilities Expense
Taxes and Licenses Uncollectible Accounts
Depreciation Expense Interest Expense

Revenue Cost of Goods Sold Operating Expenses

Questions:
1. How can you differentiate the account titles per group/classification?
2. With this activity, can we compute what will be the result of the operations if we are going
to add peso amount?
3. For what forms of Business uses these account titles?
Write your answers on the box provided below.
1.

2.

3.

ACTIVITY VI: LET’S CLASSIFY

Instruction: Classify the following expenses under the function of expense method. Write your
answers on the table provided below.

Salaries-Selling Depreciation Expense

Freight Out Utilities Expense
Advertising Expense Uncollectible Account Expense
Taxes and Licenses Rent Expense

Selling or Distribution: General and Administrative:

Question:
1. How can you differentiate the two groups of expenses under the function method? Write
your answer on the box provided below.

You’ve just shared your personal thoughts, knowledge and experiences with the recent activity. At this
juncture, you are now ready to explore the Statement of Comprehensive Income, i.e., to identify the
elements of Statement of Comprehensive Income and describe each of these items for the service
business and merchandising business. Let’s discuss the different activities.

Activity II was about the preparation of a Personal Statement of Comprehensive Income through your
allowance. The account that we used were the elements of Statement of Comprehensive Income
under the service type business. Activity III was also about revenues and expenses. We presented first
the revenues to be reduced by all expenses to arrive at the Net Income or Profit for the month/year. A
business can still earn even without having enough cash and can lose even with plenty of bank
accounts. In Activity IV, like what we did in Activity III, we classified all revenues and expenses (Income
Statement accounts of a service business) in order to arrive at Net Income or profit for the period.
Accrued Rent Expense and Accrued Salaries expense are both liabilities. Accrued interest income and
Shop Supplies on Hand are both assets. These are all Balance Sheet accounts and are excluded from
computing the Net Income or Loss. Accrued Expenses are expenses that are already incurred but not
yet paid Accrued Income are income that are already earned but not yet received under accrual
accounting method. These are all balance sheet accounts and are to be reported under Statement of
Financial Position (Balance Sheet).

In Activity V, we needed to classify account titles in order to determine accounts that are elements of
Statement of Comprehensive Income. The merchandising business used these elements.

Selling expense is an expense incurred to sell and market products to customers. These expenses
include advertising campaigns and store displays to delivering goods to customers. Any expense that
is associated with selling goods, in making a sale, is considered a selling expense. Administrative
expenses are expenses incurred not directly related to selling expenses but to specific function-related
administrative matters such as Supplies Expense and Utilities Expense.

Selling, general, and administrative expenses (SG&A) are included in the income statement in the
expense section.
✓ SG&A is not assigned to a specific product, and therefore not included in the cost of goods
sold (COGS).
✓ They are incurred as part of the day-to-day business operations.
✓ Managers target SG&A when a cost-reduction strategy is implemented because they do not
affect the manufacturing or production of goods directly.

What is a Statement of Comprehensive Income (Income Statement)?

A Statement of Comprehensive Income is a financial statement that shows the “results of operation of
the business for a given period of time. It presents the temporary accounts of owner’s equity which are
the revenue or income, costs, and expenses, which are also the three elements of the statement of
Comprehensive Income. This statement was previously known as “Income Statement”.

The information presented in the statement of comprehensive income is usually considered the most
important information provided by financial accounting because profitability is the paramount concern
to those interested in the economic activities of the enterprise. The Statement of Comprehensive
Income tells us whether the business makes profit or incurs a loss. The business makes profit because the
revenue earned is bigger than cost and expenses incurred. However, the business have suffered losses
if cost and expenses incurred exceeds revenue earned.

1. Revenue or income (1st Element)

Revenue or income refers to proceeds from the sale of merchandise. It also includes sales returns and
allowances and sales discounts which are deductions from sales account. Sales returns and allowances
are deducted from the sales because this presents the return of merchandise sold maybe due to some
damages or not conforming with orders while Sales discounts are incentives given to customers for early
collection of their accounts within the discount period.

Income refers to rendering of professional services to clients or patients like legal fees for lawyers,
accounting and auditing fees for accountants, medical fees for doctors, dental fees for dentists, etc.
or income from the use of other entities of the resources of the enterprise such as royalties income, rental
income, interest income, etc.
 2. Cost of sales or cost of goods sold (2nd Element)

Cost of Goods Sold refers to cost of manufacturing or selling the merchandise of goods or products. It
includes the cost of purchases less purchase returns and allowances and purchase discounts which are
both reduction from Purchases. Purchases is the cost of buying inventory or goods during a period with
the aim of reselling in the ordinary course of the business. Purchase returns and allowances is deducted
from Purchases account representing the return of the merchandise due to damages or not conforming
with the order while Purchase discounts refer to incentive given to customers for early payment of their
accounts within the given period. Forming part of the cost of sales is Freight-in which refers to
transportation cost in bringing the merchandise within the premise of the business to become ready for
sale.

3. Expenses (3rd ELEMENT)

Operating expenses is the 3rd and the last element that will completely form part of the Statement of
Comprehensive Income. This consists of expense that is generally classified as to function of expenses
or the nature of expenses.

Under the function of expense method, there is proper classification of expenses as to selling or general
and administrative expenses such as:

• Selling or Distribution (related to sales)

a. Freight Out
b. Store Supplies
c. Uncollectible accounts
d. Taxes and Licenses
e. Sales Salaries, etc

• General and Administrative Expenses

a. Utilities Expense
b. Rental Expense
c. Depreciation Expense
d. Insurance Expense
e. Office Salaries, etc.

Under the nature of expense method, the operating expenses will be listed down and there is no need
to indicate how these expenses are classified.

“Profit and Losses.” The excess of revenues over expenses is called profit while the excess of expenses
over revenues is called loss.

Basically, the Statement of Comprehensive Income features the following:

Revenue or Income Pxx

Less Cost and Expenses xx
Profit/Loss Pxx

The main difference of the Statements between Service and Merchandising lies on how they generate
their revenue. A service company provides services in order to generate revenue and the main cost
associated with their service is the cost of labor which is presented under the account Salaries Expense.
On the other hand, a merchandising company sells goods to customers and the main cost associated
with the activity is the cost of the merchandise which is presented under the line item Cost of Goods
Sold.

In presenting these items on the Statement of Comprehensive Income, a service company will separate
all revenues and expenses (as seen in the single-step format) while a merchandising company will
present total sales and cost of goods sold on the first part of the statement which will net to the
company’s gross profit before presenting the other expenses which are classified as either
administrative expenses or selling expenses (as seen in the multi-step format).
There are two (2) forms of Statement of Comprehensive Income, namely:

1. Single-step form - to be used in service concern or merchandising business under “perpetual

inventory system”.
2. Multiple-step form - to be used in merchandising business under ”periodic inventory system”.

This is to emphasize that the two are only formats and will yield the same amount of net income/loss.
The primary difference between a merchandising and a service-based business is the presence of
inventory. Merchandising businesses sell goods to customer, whereas service-based businesses do not.
The companies' financial statements, including the income statements, must reflect the difference.

Regardless of what format is followed, such statement should bear the following headings:
Who - the name of the company or proprietor’s name if there is no trade name.
What - the name or title of the report.
When - the period covered by the report. It might be for the month ended, for the quarter ended,
or for the year ended depending upon the cut-off date for the submission of the report.

Steps in preparing the Statement of Comprehensive Income of a merchandising business:

Step 1. Write the heading, the title of the report and the date covered. (“For the period
ended.”)
Step 2. Determine the Net Sales (Gross Sales less Sales Discounts and Sales Returns and
Allowances)
Step 3. Group the Cost of Sales accounts starting from Merchandise Inventory, Beg. And add
Purchases to arrive at the Cost of Goods Available for Sales then deduct Merchandise
Inventory, End to arrive at the Cost of Sales or Cost of Goods Sold.
Step 4. Determine Gross Profit by deducting Cost of Sales from the Net Sales.
Step 5. Group the operating expenses as to Selling or Distribution and General and
Administrative Expense.
Step 6. Deduct classified expenses from Gross Profit and you will arrive at the Profit.

There are two main types of inventory accounting systems: the periodic system and the perpetual
system. This systems achieve control over goods such as furniture, automobiles, jewelry, apparel, and
most other types of inventory. Most businesses use the perpetual inventory system.

A perpetual inventory system keeps continual track of your inventory balances. Updates are
automatically made when you receive or sell inventory. Purchases and returns are immediately
recorded in your inventory accounts. For example, a grocery store may use a perpetual inventory
system. The periodic inventory system uses an occasional physical count to measure the level of
inventory and the cost of goods sold (COGS).
• Example: Multiple-Step form (Periodic Inventory System), Merchandising Business

Pierre Supermarket
Statement of Comprehensive Income
For the month ended August 31, 2022

Sales P XX
Less: Sales Discounts P XX
Sales Returns and Allowances XX
Net Sales XX
Less: Cost of Goods Sold
Merchandise Inventory, March 1 P XX
Purchases P XX
Less: Purchase Discounts P XX
Purchase Returns and Allowances XX
Net Purchases XX
Add: Freight in XX
Delivered Cost of Purchases XX
Cost of Goods Available for Sale XX
Less: Merchandise Inventory, March 31 XX
Cost of Goods Sold XX
Gross Profit XX
Less: Operating Expenses
Selling or Distribution
Salaries Expense XX
Freight out XX
Uncollectible Accounts XX
Taxes and Licenses XX XX
General and Administrative:
Rent Expense XX
Depreciation Expense XX
Utilities Expense XX XX XX
Profit before Finance Charges XX
Less: Interest Expense XX
Profit for the month P XX

• Example: Single-step form (Perpetual system), Merchandising Business

Pierre Supermarket
Statement of Comprehensive Income
For the month ended August 31, 2022

Net Sales P XX
Less: Cost of Goods Sold XX
Salaries Expense XX
Freight- Out XX
Uncollectible Accounts XX
Taxes and Licenses XX
Total Selling Expenses XX
Rent Expense XX
Depreciation Expense XX
Utilities Expense XX XX
Profit before Finance Charges XX
Less: Interest Expense XX
Net Income/Profit for the month P XX
• Example: Single-step form, Service Business

LATTE AND ARWIN LAUNDRY SHOP

Statement of Comprehensive Income
For the month ended August 31, 2022

Service Income P XX
Interest Income XX
Total Income XX
Less: Operating Expenses
Salaries P XX
Supplies XX
Taxes and Licenses XX
Rent Expense XX
Uncollectible Accounts XX
Utilities XX
Advertising XX XX
Profit for the month P XX

Now we will have a brief review on our theories by answering the quizzer below and additional
activities that may help you enhance your understanding and skills of the topic.

ACTIVITY VII: GUESS WHAT

Instruction: Identify the correct answer of the following statement. Write your answer on the blank
provided after the number.

1. ___________________ Refers to proceeds from the sale of merchandise.

2. ___________________Is the third and the last element that will completely form part of the
Statement of Comprehensive Income.
3. ___________________Refers to cost of manufacturing or selling the merchandise of goods or
products.
4. ___________________Are revenues that are earned in one accounting period, but cash is not
received until another accounting period.
5. ___________________Inventory system uses an occasional physical count to measure the level of
inventory and the cost of goods sold (COGS).

ACTIVITY VIII: ARRANGE ME

Instruction: Arrange the following given data of a service business in a single-step form Statement of
Comprehensive Income. Write your answer on the box provided below.

LATTE AND ARWIN LAUNDRY SHOP

Salaries Expense Interest Income Advertising Expense Taxes and Licenses
August 31, 2022 Insurance Expense Service Income Uncollectible Accounts
Shop Supplies on Hand Utilities Expense Rent Expense Depreciation
ACTIVITY IX: LET’S ARRANGE THE DATA
Instruction: Arrange the following data given in order to arrive at the Cost of Goods Sold. Write your
answer on the box provided below.

Freight In XX
Purchases XX
Purchase Returns and Allowances XX
Merchandise Inventory, March 1 XX
Merchandise Inventory, March 31 XX
Purchase Discounts XX

ACTIVITY X: LET’S ARRANGE INTO A STATEMENT!

Instruction: Do this to test your knowledge and ability to answer. Arrange the data given using
multiple step-form (function method) Write your answer on the box provided below.

Sales XX
Sales Discounts XX
Sales Returns and Allowances XX
Merchandise Inventory, March 31 XX
Purchases XX
Purchase Discounts XX
Purchase Returns and Allowances XX
Freight In XX
Merchandise Inventory, March 1 XX
Salaries Expense XX
Freight-Out XX
Uncollectible Account XX
Taxes and Licenses XX
Rent Expense XX
Depreciation Expense XX
Utilities Expense XX
Pierre Supermarket
December 31, 2022
One year of operation.
ACTIVITY XI: LET’S FACE IT!
Part I. Instruction: Identify the correct answer for each of the following statements. Write your
answers on the blank provided after the number.

1. ___________________ All revenues are listed down in one section while all expenses are listed
in another.
2. ___________________ There are several steps needed in order to arrive at the company’s
net income.

3. ___________________ A form of businesses that sell goods to customer.

4. ____________________ There is proper classification of expenses as to selling or general and
administrative.

5. __________________ Is a financial statement that show the “results of operation of the

business for a given period of time

Part 2. Instruction: Enumerate the following and write your answers on the box provided below.

1-3 Elements of Statement of Comprehensive Income

4-5 Give the two main types of inventory accounting system.